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> How do you deal with a string of losses? I'm not talking about
> filters. They are fine in testing but reality is another thing. At
> what point do you say that the system has a problem.
That's an incredibly hard question. Especially since you tend to be
under extreme emotional duress when you have to answer it!!
I'd recommend examining the system's behavior and the market behavior
that's causing it. Can you identify the cause? If so, can you find
other times when the market has behaved similarly? How did the
system respond then? Do you expect the market to pull out of this
behavior as it presumably did last time?
If you can identify the cause, you can decide if you're willing to
wait for the market to change. If you CAN'T identify the cause, then
you don't have much to go on to make your decision. You can use
blind rule-of-thumb guidelines like "bail out when the system exceeds
2x its historic drawdown" or something like that, but those are
pretty arbitrary. I'd rather be certain I understand my system, so I
can decide whether to pull the plug long before then.
If possible, trade several unrelated systems. That way you aren't
totally screwed if one of them goes sour.
Gary
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